Our intent in this three-part series is to provide insights into lean solutions, such as continuous processing and/or pull systems while avoiding the buzzword and best practices traps that tend to leave practitioners believing that there are easy answers, or "silver bullets." In the second and third part of our series, we provide application examples and associated results achieved from these lean initiative, as well as a discussion on the environments that are expected to benefit most from these solutions.

Among the most frequent sort of generic questions I get asked from readers or at conferences is this: What do you see as the most important supply chain trends?

Sometimes this is in the context of a specific industry, which is always a bit tougher, but most often the question is posed in a general sense. What trends are really driving the supply chain strategies of companies right now.

Early this year, we offered a perspective of key supply chain trends for 2007, but those were meant to be things of more immediate impact, not necessarily “Megatrends” that were driving supply chains in the big picture. (As some may remember, the term “Megatrends” was popularized in 1988 by a book of the same name by author John Naisbitt – nothing to do with supply chain.)

Gilmore Says:

The rise of China as an economic and supply chain force in such a rapid period of time has been nothing short of staggering.What do you say?

So, after consulting with a few of my colleagues, I’ll take the risk of offering 10 Supply Chain and Logistics Megatrends. In this column, I’ll just give a quick summary of the first five, and cover the second five next week. Over the next six months, we’ll take on each of them in more detail. I’d love your perspective too.

There will certainly be some overlap between a few of the Megatrends, but think that is unavoidable.

In somewhat random order, here are the first five of the top ten Supply Chain Megatrends, from my perspective:

Alignment: Companies at multiple levels are trying to achieve better alignment within the supply chain organization, between supply and demand, between the supply chain and company strategies, etc. It’s obviously at the core of the strong activity in the area of Sales & Operations planning, for example, but much more as well.

Push-to-Pull: This has been around since almost the beginning of modern supply chain thinking – in fact, before – but there is no question that in the past few years, we’ve seen hundreds of companies make the development of more pull-based supply chains a major focus. “Pull-based” is the term I’ve heard Caterpillar use to discuss its supply chain transformation; Procter & Gamble embraces a “consumer-driven” supply chain initiative, while others talk about “demand-driven,” etc. Whatever you call it, it will continue to drive supply chain strategy for a long while.

Visibility: This has emerged in just a few years from being a vague and mostly analyst/vendor driven concept to an objective that is near the top of every company’s supply chain goals: improve visibility. It still means lots of things to different people, but it’s what’s driving RFID, is absolutely essential in the global supply chain, etc. Appears to be a journey, not a destination.

Virtualization: Yes, this is old news, in a sense – the outsourcing/offshoring trend has been around for a number of years. But most companies have not yet come close to fully dealing with the supply chain requirements or understanding the ramifications – many of them are negative. While a few companies such as CISCO have learned how to effectively manage a hugely virtual supply chain, it will take a new set of skills for most companies. Lately, we’ve even seen food manufacturers like Hershey shed more and more production assets and become much more virtual. Perhaps more interesting – and troubling – a growing percent of companies and industries now are responsible for adding under 25% of the total value of their products – in many cases, that percentage is in the teens. Is this good business strategy? There are some risks, to put it mildly.

China: This is obviously related to virtualization, but I think much, much more, and therefore worthy of being a “Megatrend” in its own right. The rise of China as an economic and supply chain force in such a rapid period of time has been nothing short of staggering. As we’ll write about soon, China is rapidly dislocating and dominating entire industries, often using the supply chain as a key element of the strategy. Corporate interest in penetrating the huge Chinese market guides many supply chain decisions. It is a huge opportunity, but there are also huge risks.

So there you have it. The second five Megatrends next week. I’d love to have your thoughts on what you see as the most important Megatrends driving the supply chain. I’ll be giving a presentation on this soon at the HighJump users conference, so maybe I will see you there.

What do you think are the key Megatrends driving the supply chain? What is your opinion of Dan’s first five picks? What would you add, subtract, or add more color to? Let us know your thoughts at the Feedback button below.

Finally, a bit of calm on Wall Street last week and our Supply Chain and Logistics stock index reflected the market's more temperate mood.

In the software group, Descartes Systems recovered all of its losses of the prior week (up 8.6%). Once again, there was little movement in the hardware group; and in the transport and logistics group, all 12 stocks ended the week on a positive note.

Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We're really behind again - bear with us. But keep the letters coming!

Including letters on a variety of topics this week, including our First Thoughts piece on the just released inventory statistics for 2006 (See Inventory Management Challenges Continue), including our Feedback of the week from Debmalya Chatterjee, who works in the medical products industry, and says a lack of collaboration leads to excess inventories.

You’ll find another letter on this topic from a reader who offers some thoughts on rising inventory levels, and a reader responding to our Labor Management case study on Sara Lee Foods (See Sara Lee Foods Finds LMS Value), who says unions and companies are working together just fine in most cases.

I work in the Supply Chain for medical devices. We have faced a considerable pressure on reducing inventory levels for our products driven primarily by the need to reduce expiry write-offs. However, it seems to me the industry seems to be trapped in a vicious cycle, forced to keep more inventory at accounts to reserve shelf space (an important driver to increase unit sales) from competition. This leads to a fight for shelf space at accounts at the cost of DIO and turns. It seems that Inventory Management in our industry should include a broad-based collaboration between collaborators, customers (and maybe even competitors) which will enhance the efficiency of the entire supply chain.

Debmalya Chatterjee

More On Inventory Levels :

Lean Management is in - and lower inventory, whether measured through inventory turns or in number of days, is a part of analytics in supply chain management that will serve good purpose.

However, this measures a result of various actions and should be treated as such. Sometimes I wonder whether the inventory race makes people conceal facts to reflect better statistics, and this is where line needs to be drawn- so that the inventory turns (or days) is not stated differently from what they actually are.

For example, many industries use an aggregator or a 3PL to collect components and sub-assemblies on their behalf and deliver to their factory as per their requirement, just in time.

With a margin on costs (added for the services of the aggregator) the purchase prices are higher on the total cost basis than the rate at which the item is procured. But in the anxiety to show lower DIO, this is not highlighted. One should also remember the comfort factor that the inventory gives to the Purchasing Organization especially for a bought out item, in terms of giving time and space for a buyer to explore alternatives in sourcing, in timing the purchase, and deciding logistics.

The increase in inventories due to offshoring referred in your column is a similar result and a realistic increase should be granted, lest the offshoring with tight inventory targets results in stray cases of stockouts, which may in turn lead to the whole (worthwhile) effort getting viewed negatively.

I am not sure there is anything special about the Sara Lee Foods Labor Management story.

Unions have been having management and labor meeting for years. Once a year management and labor from all different companies, along with the Federal Mediation & Conciliation Service (FMCS), meet in San Antonio for two days to discuss different issues and solve problems together.

Ronnie Vaculik

On Wal-Mart versus Tesco

I am responding to an article of yours regarding why Wal-Mart struggles to compete with Tesco in the UK, still a relevant question. As a Tesco shareholder, I could offer one answer.

I can offer another as a pure consumer however (albeit as a shareholder I am a peculiarly motivated consumer). So here goes. Since deciding to shop at Tesco for everything we can (groceries, petrol, credit cards, home insurance) all of which are very competitively priced, my wife and I have become Clubcard point junkies.

As such, we also do business with other companies (also competitively priced) who are affiliated to the Clubcard regime to gain further rewards. The result? Next year, my family will go on its third holiday paid for purely by Tesco Clubcard deal vouchers. You can't do that with Asda.

The analysis? After an age where companies could rely on loyalty to its brand, Tesco has mastered the art of the new religion, which is loyalty to oneself. If Asda offered cheaper prices, better rewards, and the ability to aggregate them, I would switch allegiance in a second. But they don't!

Mike HughesUK

SUPPLY CHAIN TRIVIA

Q. What year was the term "Lean manufacturing" first introduced into the industry?

A.The term was coined in 1990 to describe Toyota's management practices and production systems.